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An Interaction between Firm Strategy, Capital Structure and Firm’s Performance

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  • Suresh Ramakrishnan
  • Saqib Muneer
  • Melati Ahmad Anuar

Abstract

The study tries to determine the association among corporate strategy, social structure and firm performance. In this regard, the monetary reports of 78 companies listed in Karachi Stock Exchange since 2007 to 2014 were scrutinized. In this research, firm strategy (sales growth, liquidity) and capital structure (debt ratio) were used as sovereign variables, and firm performance (return on equity, return on assets, free cash flow for the firm, free cash flow per share) were functional and are used as dependent variables, so to study the affiliation between corporate strategy, capital structure and firm performance within a 8-years period from 2007 to 2014. Secondary data has been used to test the hypotheses; single variable linear regression method was used and their significance was evaluated using Statistics T (t-test) and F (Fisher). The study results indicate that there is a significant positive relationship between sales growth variables and two types (among four types) of performance criteria in the study, namely return on equity and return on assets. And there is a positive significant relationship between firm liquidity and three criteria of firm's performance in the study namely return on equity, free cash flow per share and return on assets. Also, debt ratio has a positive significant relationship with free cash flow for firm and a negative significant relationship with return on assets.

Suggested Citation

  • Suresh Ramakrishnan & Saqib Muneer & Melati Ahmad Anuar, 2015. "An Interaction between Firm Strategy, Capital Structure and Firm’s Performance," Journal of Economics and Behavioral Studies, AMH International, vol. 7(4), pages 37-47.
    • Handle: RePEc:rnd:arjebs:v:7:y:2015:i:4:p:37-47
    DOI: 10.22610/jebs.v7i4(J).592
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    References listed on IDEAS

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    1. Li, Kai & Yue, Heng & Zhao, Longkai, 2009. "Ownership, institutions, and capital structure: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 471-490, September.
    2. Saqib Muneer, 2012. "Materialization of Behavioral Finance and Behavioral Portfolio Theory: A Brief Review," Journal of Economics and Behavioral Studies, AMH International, vol. 4(8), pages 431-435.
    3. Abubakr Saeed, 2009. "Formality Of Financial Sources And Firm Growth: Empirical Evidence From Brazilian Smes 1990-2005," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 1(2 (Octobe), pages 129-140.
    4. Syed Muhammad Javed & Agha Jahanzeb & Saif-ur-Rehman, 2012. "A Critical Review of Capital Structure Theories," Information Management and Business Review, AMH International, vol. 4(11), pages 553-557.
    5. Saqib Muneer & Babar Zaheer Butt & Kashif Ur Rehman, 2011. "A Multifactor Model of Banking Industry Stock Returns: An Emerging Market Perspective," Information Management and Business Review, AMH International, vol. 2(6), pages 267-275.
    6. Miller, Merton H & Rock, Kevin, 1985. "Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
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    Cited by:

    1. Matthew Adeolu Abata & Stephen Oseko Migiro, 2016. "Capital Structure and Firm Performance in Nigerian-Listed Companies," Journal of Economics and Behavioral Studies, AMH International, vol. 8(3), pages 54-74.

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